Citizens spending

Published: Wednesday, February 27, 2013 at 08:00 AM.

Citizens Property Insurance is on shaky financial ground because its actuarial numbers don’t add up — the value of the properties it insures exceeds the amount of money it can pay out in claims should a major hurricane hit Florida.

Nevertheless, it faces a growing storm over the spending practices of the state-backed company’s executives.

Last August, the Tampa Bay Times/Miami Herald detailed how Citizens officials spent lavishly on hotel rooms, meals and travel, beyond what state guidelines allow. This occurred while the insurer was seeking substantial rate hikes and finding ways to deny discounts to homeowners.

Gov. Rick Scott called on his inspector general to investigate Citizens, not just for its profligacy on travel but also in response to reports the insurer had paid hundreds of thousands of dollars in severance packages to executives who resigned amid scandal — and that Citizens had fired its employees who had investigated the misconduct.

Earlier this month, the state’s Office of Insurance Regulation’s “market conduct examination” — which reviews Citizens’ operations over the last two years — criticized the company for unnecessary travel costs, failing to negotiate on multimillion-dollar vendor contracts and spending more than $10,000 a month on vacant office space.

More recently, the Times/Herald reported that several top Citizens executives had received raises of between 12 and 24 percent; some amounted to as much as $31,000. Gov. Scott called the raises “foolish” and implored the employees to give them back.

All of this is happening while Citizens has raised rates 10.8 percent in the last year, which cost Florida homeowners an estimated $250 million. The company also inspected more than 250,000 homes to ensure they qualified for wind-mitigation discounts; three out of four homeowners inspected lost discounts that they had previously been receiving, leading to an average premium hike of $800. However, in November a judge ruled the process was flawed.

Citizens Property Insurance is on shaky financial ground because its actuarial numbers don’t add up — the value of the properties it insures exceeds the amount of money it can pay out in claims should a major hurricane hit Florida.

Nevertheless, it faces a growing storm over the spending practices of the state-backed company’s executives.

Last August, the Tampa Bay Times/Miami Herald detailed how Citizens officials spent lavishly on hotel rooms, meals and travel, beyond what state guidelines allow. This occurred while the insurer was seeking substantial rate hikes and finding ways to deny discounts to homeowners.

Gov. Rick Scott called on his inspector general to investigate Citizens, not just for its profligacy on travel but also in response to reports the insurer had paid hundreds of thousands of dollars in severance packages to executives who resigned amid scandal — and that Citizens had fired its employees who had investigated the misconduct.

Earlier this month, the state’s Office of Insurance Regulation’s “market conduct examination” — which reviews Citizens’ operations over the last two years — criticized the company for unnecessary travel costs, failing to negotiate on multimillion-dollar vendor contracts and spending more than $10,000 a month on vacant office space.

More recently, the Times/Herald reported that several top Citizens executives had received raises of between 12 and 24 percent; some amounted to as much as $31,000. Gov. Scott called the raises “foolish” and implored the employees to give them back.

All of this is happening while Citizens has raised rates 10.8 percent in the last year, which cost Florida homeowners an estimated $250 million. The company also inspected more than 250,000 homes to ensure they qualified for wind-mitigation discounts; three out of four homeowners inspected lost discounts that they had previously been receiving, leading to an average premium hike of $800. However, in November a judge ruled the process was flawed.

Those measures are designed to bolster Citizens’ financial standing after years of neglect. After the active 2004-05 hurricane seasons devastated Florida’s insurance markets, Citizens, originally conceived as the state’s insurer of last resort, became its largest insurer. In response to complaints about the rising cost of insurance, then-Gov. Charlie Crist and the Legislature froze Citizens’ rates.

That meant the company was taking on increasing amounts of risk without charging enough to build sufficient reserves to cover the claims. According to state projections released this week, Floridians would face about $7.19 billion in post-hurricane taxes to make up the funding shortfalls of Citizens and the Florida Hurricane Catastrophe Fund should just a 1-in-50-year storm hit the state. That total could grow up to $23.9 billion if a stronger storm hit.

That funding gap isn’t going to shrink much if Citizens executives give back their raises and stop staying in swanky hotels and dining on Lobster Thermidor.

However, that’s no excuse to waste even a dime on creature comforts. Citizens is asking policyholders to make do with less in their personal finances to accommodate higher rates without making concurrent sacrifices in its professional expenditures. Gov. Scott and the Legislature need to give company officials a strong dose of reality.

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